Martin's Herend Imports, Inc. v. Diamond & Gem Trading USA, Co.
| Citation | 112 F.3d 1296,42 USPQ2d 1801 |
| Decision Date | 28 May 1997 |
| Docket Number | Nos. 95-20349,95-21019 and 96-20781,s. 95-20349 |
| Parties | MARTIN'S HEREND IMPORTS, INC. and Herendi Porcelangyar, Plaintiffs-Counter Defendants-Appellees, v. DIAMOND & GEM TRADING USA, CO., Judith Juhasz and Frank Juhasz, Defendants-Counter Plaintiffs-Appellants. MARTIN'S HEREND IMPORTS, INC. and Herendi Porcelangyar, Plaintiffs-Counter Defendants-Appellees, v. DIAMOND & GEM TRADING USA, CO., et al., Defendants, Judith Juhasz and Frank Juhasz, Defendants-Counter Claimants-Appellants. MARTIN'S HEREND IMPORTS, INC. and Herendi Porcelangyar, Plaintiffs-Appellees, v. DIAMOND & GEM TRADING USA, CO., et al., Defendants, Judith Juhasz and Frank Juhasz, Defendants-Appellants. |
| Court | United States Courts of Appeals. United States Court of Appeals (5th Circuit) |
Mark S. Lee, Cara R. Burns, Manatt, Phelps & Phillips, Los Angeles, CA, for Martin's Herend Imports, Inc. and Herendi Porcelangyar.
John Russel Feather, Bush, Moseley, Riddle & Jackson, Houston, TX, for Diamond & Gem Trading USA Co., Judith Juhasz and Frank Juhasz.
Appeals from the United States District Court for the Southern District of Texas.
Before REAVLEY, KING and BARKSDALE, Circuit Judges.
In this trademark dispute, Judit and Frank Juhasz and their proprietorship, Diamond & Gem Trading, USA, Co. (collectively Juhasz), appeal a judgment awarding injunctive relief and damages, a contempt order, an order awarding attorney's fees, and a summary judgment denying their counterclaim for wrongful seizure. We agree with the district court that plaintiffs were entitled to injunctive relief and damages, but hold that the injunction entered was too broad. We also reverse the award of attorney's fees, affirm the contempt order, and reverse the judgment on the counterclaim.
Herendi Pocelangyar (Herendi), a Hungarian corporation, is the manufacturer of Herend porcelain. It manufactures high-quality porcelain tableware, figurines, and other pieces. The pieces are hand-painted by master craftsmen and usually sell for hundreds or thousands of dollars each. Herendi owns a federally registered trademark which consists of the hand-painted "Herend" name and design.
Martin's Herend Imports, Inc. (Martin's) is an American corporation. Martin's and Herendi are parties to an exclusive distributorship agreement, under which Martin's is authorized as the sole importer of Herend porcelain for sale in the United States. 1 Martin's and Herendi select which Herendi pieces are offered for sale in this country. Martin's imports top quality pieces and resells them in this country to upscale retailers. It chooses not to import many of the thousands of items offered by Herendi even when manufactured to the same quality standards.
Juhasz, individually or through Diamond & Gem or a successor company, sold pieces bearing the Herend trademark after purchasing them from American and foreign sources, including Herendi company stores located in Hungary. The parties dispute whether Juhasz ever sold Herendi pieces that were "counterfeit" in the ordinary sense, meaning that they bore a fake trademark or were not in fact manufactured by Herendi. Juhasz has vehemently maintained throughout this litigation that it only sold genuine Herend porcelain, purchased from legitimate sources in this country or elsewhere. It claims that all the goods it sold bore a true Herendi trademark and were in fact manufactured at the Herendi factory. Some of the pieces were vintage items from private collections. Juhasz conceded, however, that it sold Herend pieces not offered for sale in this country by Martin's, the exclusive distributor for the American market. Such pieces are sometimes referred to as "gray market" goods. 2
Herendi and Martin's sued Juhasz, alleging trademark infringement and false designation of origin, and seeking injunctive relief, damages and an ex parte order of seizure. The complaint alleges that Juhasz sells "counterfeit goods" bearing "counterfeit Herendi trademarks." An accompanying affidavit submitted by Martin's president states that Martin's had purchased from Juhasz numerous counterfeit Herend pieces, which were inferior in quality to genuine pieces. On the same day that suit was filed, the district court signed a temporary restraining order and order of seizure. Plaintiffs, through counsel and with the assistance of U.S. marshals, raided Juhasz's premises, seizing numerous goods and records.
The case proceeded to trial. At the close of plaintiffs' case, the district court granted plaintiffs' motions for summary judgment and judgment as a matter of law, holding Juhasz liable for trademark infringement, and denying its counterclaim for wrongful seizure. The issue of damages was left to the jury, which returned a verdict of $685,000. The court entered judgment in favor of both plaintiffs for this amount, and granted a permanent injunction against Juhasz. As discussed below, the court later awarded plaintiffs attorney's fees, and entered an order of contempt against Juhasz.
While originally alleging that Juhasz was selling fake Herend porcelain, plaintiffs ultimately sought judgment on the theory that the pieces sold by Juhasz, even if genuine, were materially different from those imported by Martin's for sale in this country under its rights as the exclusive importer and distributor of Herend wares. The difference is between those lines of Herend products Martin's imports and those lines it does not import. The district court agreed with this theory of liability.
Some courts have recognized that trademark protection extends to bar a defendant's importation of genuine goods where, as here, the manufacturer of the goods has granted exclusive importation rights to a single domestic importer. An early explication of this doctrine is found in Justice Holmes's opinion in A. Bourjois & Co. v. Katzel. 3 There, plaintiff Bourjois purchased the United States business and the "Java" trademark of a French face powder manufacturer. Defendant Katzel purchased the same powder in France, packed in French boxes with the "Java" name, and began selling it in the United States. Although the powder was genuine, the Court held that the plaintiff's trademark had been infringed. The Court reasoned that the French manufacturer could no longer legally sell the powder in the United States, and should not be able to circumvent its agreement with the plaintiff by selling the powder to others for import into this country. An essential teaching of Katzel is that trademarks can sometimes have a territorial scope.
There are factual distinctions between our case and Katzel. In Katzel, the American importer was the only plaintiff, while in our case both the American importer (Martin's) and the foreign manufacturer (Herendi) are plaintiffs. The Court noted a "public understanding [ ] that the goods come from the plaintiff although not made by it," that the trademark itself had been sold to the plaintiff, and that the trademark "stakes the reputation of the plaintiff upon the character of the goods." 4 In our case, liability was not based on proof that Martin's owns the trademark, or that the public attached any meaning to the Martin's name or even associated Martin's with Herend porcelain. Nevertheless, other courts have read Katzel and the trademark laws to prohibit a defendant from importing goods that are materially different from those imported by an exclusive distributor or importer, even absent proof that the public associates the goods with the exclusive distributor.
This approach was fully explicated in the First Circuit's opinion in Societe Des Produits Nestle, S.A. v. Casa Helvetia, Inc. 5 Nestle, a foreign company, owned the trademark for Perugina chocolates. Nestle sold expensive, Italian-made Perugina chocolates in Puerto Rico through an exclusive distributorship agreement with an American affiliate. It also licensed the manufacture and sale of less expensive Perugina chocolates in Venezuela. Defendant Casa Helvetia purchased the Venezuelan chocolates through a middleman, imported them to Puerto Rico, and sold them there under the Perugina mark. The court recognized that trademark protection has a territorial element, but said that Katzel did not prohibit the importation of identical foreign goods carrying a valid trademark since, by and large, "courts do not read Katzel ... to disallow the lawful importation As in our case, the goods at issue in Nestle were authentic and bore a genuine trademark. The court nevertheless held that Nestle, the owner of the trademark, and its regional Puerto Rico distributor were entitled to injunctive relief for trademark infringement and unfair competition under sections 32(1)(a), 42 and 43(a)(1) of the Lanham Act. 10 The court reasoned that "the importation of goods properly trademarked abroad but not intended for sale locally may confuse consumers and may well threaten the local mark owner's goodwill." 11
of identical foreign goods carrying a valid foreign trademark. Be that as it may, territorial protection kicks in under the Lanham Act where two merchants sell physically different products in the same market and under the same name, for it is this prototype that impinges on a trademark holder's goodwill and threatens to deceive consumers." 6 The court adopted a test finding infringement where the foreign goods imported by the defendant gray market importer are materially different from the goods sold by the plaintiff authorized to sell the trademarked goods in the domestic market. 7 The court also noted that in this context "the threshold of materiality is always quite low." 8 Applying this test, the court held as a matter of law that the chocolates were materially different since their presentation, composition, variety, and price were different. 9
Nestle did not turn on proof by the plaintiff of consumer confusion. Instead, it presumed a likelihood of confusion as a...
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